ANZ cutting back on trade finance in Asia as profit growth slows

by |
30 Oct 2015

(Bloomberg) -- Australia & New Zealand Banking Group Ltd. has begun reducing its trade-finance business in Asia to protect margins and bolster returns after the lender reported its slowest profit growth since 2008.

Net loans at its international and institutional banking businesses fell by 1 percent in the six months ended Sept. 30, ANZ said in a statement Thursday. That was the first drop since such disclosures began in 2012, filings show. The unit is stepping away from “lower return financial institutions” trade finance and focusing on cash management, outgoing Chief Executive Officer Mike Smith said in the statement.

For the year to September, the Melbourne-based bank reported a 1 percent increase in cash profit to A$7.22 billion ($5.1 billion), the slowest growth since a drop in 2008, amid the global financial crisis. Shayne Elliott, who takes over as CEO from Jan. 1, faces the challenge of boosting lagging returns at the international business, which Smith has expanded over the past eight years.

“We’ve taken some hard decisions around the trade business in particular, which is a really competitive business in Asia,” Elliott, who is currently chief financial officer, said on a media conference call. “From time to time, it’s a great business, and when we have excess liquidity, we can participate. In the second half, the returns were a little too low and we’ve deployed our capital elsewhere.”

Taking Action

The lender is expanding cash-management businesses such as transaction banking and treasury services, growing its market share in mortgages and small business in Australia and New Zealand, Smith said. Under his leadership, the bank had set a target to double the profit contributed from its non-Australia and New Zealand businesses to as much as 30 percent by 2017.

“Finally, actions are starting to follow the intent to focus on Asian returns,” said Simon Burge, who oversees A$450 million including ANZ shares as chief investment officer at Above the Index Asset Management Pty in Sydney. “Asia has been under performing and I’d prefer the bank to look at reducing some of its footprint in the region.”

ANZ shares dropped 0.9 percent to A$28.48 at 2:15 p.m in Sydney. The stock sank 11 percent this year, making it the worst performer among Australia’s largest lenders. The benchmark S&P/ASX 200 Index is down 2.2 percent in 2015.

Lower Profit

The international and institutional banking unit, which houses the Asia business, posted a return on assets of 0.67 percent for the fiscal year, down from 0.83 percent a year earlier. That’s less than the 1.09 percent return for ANZ’s Australian business, according to the regulatory disclosure.

The Australian business’s cash profit increased 7 percent, while ANZ’s international and institutional unit recorded a 2 percent drop, most of it in the second half, according to the disclosure. Smith blamed the Asian weakness on a lack of customer activity in the last quarter due to factors including the devaluation of China’s yuan and a delay in the U.S. raising its interest rates.